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#VALUE!
- by Caifu Global
By: Sara Donelly
Filmmaking remains big business in 2015, and as the industry quickly evolves, foreign markets want to break into China, and China is keen to invest overseas.
Hollywood is still the world's largest maker of movies, and North America still has the biggest box office receipts- $10.3 billion payout last year, down from $10.9 billion in 2013-but in a few short years, China has surpassed Japan to be the world's second largest film market. In 2013, China’s box office receipts tallied $3.6 billion — a 27 percent increase over the previous year. Then in 2014 China’s box office sales hit $4.8 billion. Experts estimate that China will overtake North America as the top movie market in the next 10 years.
For the U.S. film industry, China is a critical market to crack. Domestic box office numbers have been falling and now a blockbuster film can make as much as 70 percent of its return outside of North America. Winning over Chinese audiences may be the key to keeping the U.S. market afloat.
The Chinese industry is overseen by China Film Group, a huge government-owned company.
As the demand for film grows in Asia, and the film industry also expands, China needs the depth of moviemaking experience Hollywood can offer, to improve its production values, and develop their market. To date, most Chinese movies lose money, and only about one quarter makes it into theatres.
The quota system, overseen by the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT), allows just 34 foreign films into China each year. Fourteen of these must be either IMAX or 3-D. Films allowed to play in Chinese theatres also must meet a certain criteria, including showing China in a positive light when there is a Chinese component.
Although foreign film producers only getting a small return, usually less than 25% of box office revenues, foreigners are eager to get their films into China. They are even going so far as to adapt their product especially for the Chinese market. A good example of this is Disney's Iron Man 3 which added four minutes of footage with Chinese actors to the Chinese version of the film.
All of this is not without doubt and controversy. When Disney Co. announced it would co-produce Iron Man with Chinese company DMG Entertainment, the U.S. Securities and Exchange Commission launched an investigation into whether Hollywood movie studios had been paying bribes while working in China.
To get a foothold in China, Hollywood studios are helping finance films or co-producing them.
Oriental Dreamworks is a joint venture with Shanghai Media Group, a state owned studio.
The differences are stark, In the U.S. the power lies with the studios; in China with the state. The government controls what films get made and has a hand in every aspect of the film business from production to exhibition. China Film group produces movies and distributes Hollywood and Chinese films. The government rewards independent producers for making films it approves of, and it blocks Hollywood films during national holidays to promote Chinese ones.
The Chinese government's goals in growing the film industry are to have people in China see films that exemplify Chinese values and culture while also spreading a more favourable view of China to the world.
China uses subsidy and censorship to get the kind of films it wants made. But for all the effort, many of the films getting made are remakes of Hollywood hits. Lost in Thailand, which resembled The Hangover grossed $192 million in China, but only $60,000 in America.
Co-Productions a Win-Win
Co-productions get past the limit set on outside films. A co-production is treated as a domestic film, so the share of box office revenue on co-production is higher. A co-production can command 38 percent of box office as opposed to the13 to 25 percent available for imported films. The Chinese authorities require that around 55 percent of total box office revenue is taken by domestic films so a certain return on domestic film is guaranteed.
Films can't show the Communist Party of China in a negative light, and they must limit depictions of corruption or superstitious imagery, such as ghosts. There’s also an idea that anyone breaking the law should be punished by the end of the film.
But there are no hard and fast rules. Each film is judged on a case-by-case basis. In some instances, it just needs to be clear to Chinese audiences that corrupt or superstitious practices depicted would not succeed in China.
Some filmmakers are taking the extra step of tailoring their content to Chinese audiences.
Transformers 4: Age of Extinction (2014), which brought in more than $300 million in China, broke all box office records. It edged out out Avatar as the highest grossing film of all time in the Chinese market. In the U.S. market, Transformers 4 earned only about $245 million,
The film had purposefully included Chinese elements-part of the film was shot in Beijing and Hong Kong, and well-known Chinese actors were included in the cast.
Big blockbuster films like the Transformers franchise tend to do best with Chinese audiences. As piracy is rife, it takes splashy special effects, 3D and IMAX to entice moviegoers into a theatre rather than just seeing the film on their smartphones or other devices.
Hollywood North
Vancouver is known as Hollywood North for a reason. The city has a long established tradition of filmmaking and attracts the best talent in the industry. Tax incentives and government programs continue to make BC an attractive location for production and filming, and the natural beauty and diversity of the locations doesn't hurt either.
Richard Brownsey, CEO of Creative BC, an independent agency that promotes the development of creative industry in BC agrees. He told Caifu Magazine that:
"This is a very successful jurisdiction for film production. We're the third largest production centre in North America after Los Angeles and New York. We do a great deal of production for US studios, US broadcasters, and we have a very strong domestic industry that creates content that is for Canada but which is also sold around the world. And we have over the past few years become one of the few major global centre for the production of visual effects. So it's a very, very strong industry here in British Columbia. In 2013-14 we did almost $1.5 billion worth of production here in B.C."
Creative BC administers all the provincial tax incentives for the film and television industry. This is at the root of financing of productions that are made in British Columbia.
"These include labour based incentives so that a percentage of the labour that is BC based labor that is hired for a movie- part of that money comes back to the producer. In addition to that base level that we have ---which is 33 percent ---there are incentives for doing digital animation or visual effects in British Columbia. Those go on top of the base assistance."
In particular, the Digital Animation and Visual Effects (DAVE) tax credits are interesting and are an incentive that is unique to BC. These are labour credits on the workers used to generate digital media content – used a lot on the post-production projects.
DAVE credits are also an investment attraction tool for BC and they have been helpful for Chinese media companies that set up shop here. They first bring in their key foreign staff and then tap into the local talent here. It's a win-win for the Chinese company which can then export the media back to China, but have access to a different talent set and a more global perspective
Working with China
"I think there's a number of ways that we can work with Chinese companies." Brownsey adds.
"Canada has a co-production treaty for film with China. We can enter into formal treaty co-productions in film and that makes the resulting film domestic product for both countries and allows the producers to access incentives on both sides of the pacific."
This is a developing area that producers are looking into- trying to find content that makes sense for both China and the rest of the world, and then trying to strike a business relationship under this China-Canada treaty,
Brownsey emphasizes that British Columbia is also a wonderful location for producers to come and shoot Chinese controlled productions.
"I think also British Columbia represents a really remarkable opportunity for Chinese companies that wish to establish a North American beachhead for the distribution of, or creation of movies for international audiences. It's a very welcoming business environment here. We have programs that exist under the authority of the International Financial Act which makes the international distribution of content out of Vancouver very, very cost appealing."
"It is a very welcoming environment for companies that are looking to establish a beachhead in North America or a beachhead for the western world."
"I think it's also an opportunity for Chinese companies who wish to invest in B.C. companies, and I think that's particularly true in the digital production space for companies who wish to make direct investment."
Slowly Developing
Brownsey explained that this has been a slowly developing industry:
"We have individual producers who are working very hard establishing relations with Chinese companies. That takes time to develop. We are very open to Chinese companies that wish to film here in British Columbia and provide all kinds of services to anyone that wishes to come into British Columbia to shoot. We help with everything from locations to giving them information on who might be good location or production managers. And explain how they can access the incentives that will allow them to finance the production. So it's an area that we are committed to continuing to work on."
"All the tax incentives are production based and they are based on the amount of B.C. labor that is used in the production of that and there are a few components to it, There's the base level and add-ons if post production happens here."
All added together they represent a very competitive and compelling incentive system in British Columbia:
"It's an incentive system that we pioneered, and the Canadian system for production incentives is the model that is now used around the world." Brownsey says, "and in BC we have been managing these kinds of programs now for fifteen years. So we are very knowledgeable about this system, and we're certainly able to explain it to any Chinese companies considering doing productions here in BC."
Some examples of recent productions
"Finding Mr. Right was shot here, it had huge Chinese box office. There was a co-production on the building of the CPR railroad which was called Iron Horse which was a treaty co-production, and there are a number of television initiatives underway. "
Stories are at the root of co-productions and creating content that is desirable for both audiences in China and in Canada
"We have, between China and Canada a very long shared cultural history so there are stories that resonate both in Canada and in China so I'm very optimistic that we're going to find those stories and we're going to find the companies that want to produce them."
For the industry perspective, I spoke with Sean Patrick O'Reilly, CEO of Arcana Films.
O'Reilly told Caifu Magazine:
"We have already worked with a few Chinese companies and are now very interested in collaborating with the right partner who can help produce and distribute our animated content in China. We are just learning the requirements for distribution and production in China, and want a funded Chinese entity to do true co-productions with."
"My experience in China is quite limited and I have not done a co-production or partnership yet. From what I understand, the requirements for Chinese content are similar to those of Canadian content (CAVCO) so I believe I understand the rationale behind it. Having said that, I can imagine navigating the regulations requires a special knowledge and insight that comes from experience."
The Film Production Industry in British Columbia appears to offer fertile ground to cultivate fruitful partnerships between Chinese and Canadian partners.
Entertainmnet
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North American Film Industry Overview
- by Caifu Global
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Investing in the Film Industry-Big Returns Require Innovation
- by Caifu Global
As I write this, Hou Hsiao-hsien has just won best director at The Cannes International Film Festival for his martial arts film The Assassin, a Taiwan-Hong Kong-China co-production starring Shu Qi. It was called the most beautiful film of the year by critics at the festival. Now time will show if such high-profile praise will translate into box office profit.
As the film industry continues to evolve quickly, it offers high risk for possible big returns. In many ways it is a mixture of shrewd marketing, research, good timing, and a lot of luck. Part artistry, part gambling, it is one of the most creative and exciting industries to be involved in.
There are ways one can lessen the exposure to risk, but history has shown many times that films with big budgets and star-studded casts have been box office duds, while low budget movies with virtual unknown actors have gone on to become sleeper hits with little to no marketing. Good writing and directing usually help, and there are some historically successful ways to mitigate risks- 3D action movies and franchises tend to do better than art house films-but many of these models no longer apply.
As more and more content is consumed online, on devices, and box office numbers continue to plummet (at the time of this writing the U.S. Memorial Day box office, historically one of the year’s most profitable weekends, had its worst showing since 2001 and is down 39 percent over two years ago) it is the innovators that will ultimately survive and thrive.
For a firsthand perspective on the industry, Caifu Magazine spoke to Sean Patrick O’Reilly, CEO and founder of Arcana Films, based in Vancouver. Since its launch in 2004, Arcana has established itself as a successful entertainment company producing engaging storytelling with compelling art. In addition to film, it is a leader in the development of intellectual properties across all platforms and publishes thousands of comic books and over 300 graphic novels. Arcana’s library of wholly owned intellectual properties contain well over 5,000 characters and one of the world’s largest libraries of graphic novels.
“I have approached the film industry in a 'sell first, build second’ model,” says O’Reilly, “The first question I would ask prospective investors to ask me, and others, is who has committed to pre-sales of the project? I would then quickly follow up with how much is presold, how much would come from tax credits and present a “guaranteed scenario” along with one that has risk which would be mitigated through overages on minimum guarantees. To be very honest, our company has a lot of intellectual property so we do not have to pay rights fees, additional producer fees and we own everything. This 'vertical distribution’ allows us to remain in control during production, and can further reduce costs as we do not make unnecessary creative changes and can balance creative decisions with production constraints. We are profitable, sell before we build and we take very few risks with the IP we already own and have established in print publishing. We are a low risk, high yield investment that will be around for many years to come.”
According to O’Reilly, diversification is a key component. “In 2012, Arcana opened an animation division to develop and produce its content for all platforms including film, television, direct-to-home and digital media. This extension of our comic book characters has provided new merchandising vehicles across all retail product lines. By combining our commercialization strategy with our extensive storytelling, packaging, and corporate management abilities, we seek to build a strategically diversified and profitable character-based entertainment business. Arcana has the experience of animated production, a top notch team to execute a plan and is a Canadian company that receives tax credit benefits for content production as well as research and development.”
Arcana’s first animated TV series, Kagagi, aired in Canada in 2015 and its first animated feature film, Pixies, opened in U.S. theatres June 5th. Both the 13 x 22 minute TV series and the animated feature film came from two of the company’s comics and graphic novels. Arcana is in production on its next animated feature film, Howard Lovecraft & The Frozen Kingdom that is scheduled for an October 2016 release.
British Columbia remains an exceptionally good place to do business in the film industry for many reasons. The strategic location, mere hours from Hollywood mean that many established studios set up shop here decades ago. The historically lower Canadian dollar and many government tax incentives have also kept the region attractive, which has in turn boosted the level of talent attracted to the region to rival that of Los Angeles and New York. It is, in fact, the third biggest production centre in North America.
Richard Brownsey, CEO of Creative BC believes the region offers great investment opportunities in film and beyond.
“I think there is opportunity for Chinese companies who wish to invest in BC companies. That’s particularly true in the digital space for companies who wish to make direct investment as well.”
British Columbia represents a really remarkable opportunity for Chinese companies that wish to establish a north American beachhead for the distribution of, or creation of movies for international audiences,” he adds.
“It’s a very, very welcoming business environment here. We have programs that exist under the authority of the international financial act which makes the international distribution of content out of Vancouver very, very cost appealing.”
As of March 31, 2015, B.C.’s film and television industry hit an estimated record $2 billion.
(The official figures have not yet been released but Creative BC has confirmed the industry’s production value hit $1.84 billion for the first 11 months of the fiscal year.)
Value of film and TV production in B.C.
2003 $1.4 billion
2004 $801 million
2005 $1.23 billion
2006 $1.23 billion
2007 $943 million
2008 $1.21 billion
2009 $1.32 billion
2010 $1.02 billion
April 1/11 – March 31/12 $1.34 billion
April 1/12 – March 31/13 $1.48 billion
April 1/13 – March 31/14 $1.45 billion
April 1/14 – March 31/15 $ 2 billion (estimated)
Source: Creative BC & BC Film Commission
Note: Year-end changed to March 31 as of 2012.
February 1, 2011. Vancouver, BC. Sean O’Reilly
Founder/C.E.O., Arcana Studio, has an animation/comic/graphic novel business. Here he is in his Burnaby Studio. Portrait for top 40 under 40. Photo: Laura Leyshon for the Globe and Mail
Written By Sarah Donnelly
As I write this, Hou Hsiao-hsien has just won best director at The Cannes International Film Festival for his martial arts film The Assassin, a Taiwan-Hong Kong-China co-production starring Shu Qi. It was called the most beautiful film of the year by critics at the festival. Now time will show if such high-profile praise will translate into box office profit.
As the film industry continues to evolve quickly, it offers high risk for possible big returns. In many ways it is a mixture of shrewd marketing, research, good timing, and a lot of luck. Part artistry, part gambling, it is one of the most creative and exciting industries to be involved in.
There are ways one can lessen the exposure to risk, but history has shown many times that films with big budgets and star-studded casts have been box office duds, while low budget movies with virtual unknown actors have gone on to become sleeper hits with little to no marketing. Good writing and directing usually help, and there are some historically successful ways to mitigate risks- 3D action movies and franchises tend to do better than art house films-but many of these models no longer apply.
As more and more content is consumed online, on devices, and box office numbers continue to plummet (at the time of this writing the U.S. Memorial Day box office, historically one of the year’s most profitable weekends, had its worst showing since 2001 and is down 39 percent over two years ago) it is the innovators that will ultimately survive and thrive.
For a firsthand perspective on the industry, Caifu Magazine spoke to Sean Patrick O’Reilly, CEO and founder of Arcana Films, based in Vancouver. Since its launch in 2004, Arcana has established itself as a successful entertainment company producing engaging storytelling with compelling art. In addition to film, it is a leader in the development of intellectual properties across all platforms and publishes thousands of comic books and over 300 graphic novels. Arcana’s library of wholly owned intellectual properties contain well over 5,000 characters and one of the world’s largest libraries of graphic novels.
“I have approached the film industry in a 'sell first, build second’ model,” says O’Reilly, “The first question I would ask prospective investors to ask me, and others, is who has committed to pre-sales of the project? I would then quickly follow up with how much is presold, how much would come from tax credits and present a “guaranteed scenario” along with one that has risk which would be mitigated through overages on minimum guarantees. To be very honest, our company has a lot of intellectual property so we do not have to pay rights fees, additional producer fees and we own everything. This 'vertical distribution’ allows us to remain in control during production, and can further reduce costs as we do not make unnecessary creative changes and can balance creative decisions with production constraints. We are profitable, sell before we build and we take very few risks with the IP we already own and have established in print publishing. We are a low risk, high yield investment that will be around for many years to come.”
According to O’Reilly, diversification is a key component. “In 2012, Arcana opened an animation division to develop and produce its content for all platforms including film, television, direct-to-home and digital media. This extension of our comic book characters has provided new merchandising vehicles across all retail product lines. By combining our commercialization strategy with our extensive storytelling, packaging, and corporate management abilities, we seek to build a strategically diversified and profitable character-based entertainment business. Arcana has the experience of animated production, a top notch team to execute a plan and is a Canadian company that receives tax credit benefits for content production as well as research and development.”
Arcana’s first animated TV series, Kagagi, aired in Canada in 2015 and its first animated feature film, Pixies, opened in U.S. theatres June 5th. Both the 13 x 22 minute TV series and the animated feature film came from two of the company’s comics and graphic novels. Arcana is in production on its next animated feature film, Howard Lovecraft & The Frozen Kingdom that is scheduled for an October 2016 release.
British Columbia remains an exceptionally good place to do business in the film industry for many reasons. The strategic location, mere hours from Hollywood mean that many established studios set up shop here decades ago. The historically lower Canadian dollar and many government tax incentives have also kept the region attractive, which has in turn boosted the level of talent attracted to the region to rival that of Los Angeles and New York. It is, in fact, the third biggest production centre in North America.
Richard Brownsey, CEO of Creative BC believes the region offers great investment opportunities in film and beyond.
“I think there is opportunity for Chinese companies who wish to invest in BC companies. That’s particularly true in the digital space for companies who wish to make direct investment as well.”
British Columbia represents a really remarkable opportunity for Chinese companies that wish to establish a north American beachhead for the distribution of, or creation of movies for international audiences,” he adds.
“It’s a very, very welcoming business environment here. We have programs that exist under the authority of the international financial act which makes the international distribution of content out of Vancouver very, very cost appealing.”
As of March 31, 2015, B.C.’s film and television industry hit an estimated record $2 billion.
(The official figures have not yet been released but Creative BC has confirmed the industry’s production value hit $1.84 billion for the first 11 months of the fiscal year.)
Value of film and TV production in B.C.
2003 $1.4 billion
2004 $801 million
2005 $1.23 billion
2006 $1.23 billion
2007 $943 million
2008 $1.21 billion
2009 $1.32 billion
2010 $1.02 billion
April 1/11 – March 31/12 $1.34 billion
April 1/12 – March 31/13 $1.48 billion
April 1/13 – March 31/14 $1.45 billion
April 1/14 – March 31/15 $ 2 billion (estimated)
Source: Creative BC & BC Film Commission
Note: Year-end changed to March 31 as of 2012.
February 1, 2011. Vancouver, BC. Sean O’Reilly
Founder/C.E.O., Arcana Studio, has an animation/comic/graphic novel business. Here he is in his Burnaby Studio. Portrait for top 40 under 40. Photo: Laura Leyshon for the Globe and Mail
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The business of selling a movie
- by Caifu Global
When we think of Cannes Film Festival we think of movie stars walking the red carpet accompanied by the constant click of camera shutters and flashing lights.
However Cannes, now in it’s 70th year, has long been the place where international distribution deals get made. It remains the largest film marketing gathering in the world. From the art house films of Merchant Ivory to the glitz and exploitation of Cannon movies it’s at Cannes that determines whether or not they have a product distributors think will sell.
You may have noted that Merchant Ivory Productions and Cannon Films are either gone (Cannon) or on life support (Merchant Ivory), even though both had fairly long runs of small, but profitable films. Merchant Ivory (founded in 1962) peaked in the mid-1990s, but the final nail in their coffin came in 2005 with the death of producer Ismail Merchant, the legendary (according to some) swindler who sold the high-brow pictures created by director James Ivory.
Founded in the U.S in 1967, but taken over by Israeli businessmen Menahem Golan and Yoram Globus in 1975, Cannon films never aspired to cultivate the attention of high-brow tastes. They produced cheap exploitation films (making stars out of Jean Claude Van Damme and Chuck Norris in the process) betting that you can never go wrong appealing to the lowest common denominator. Most of their films, like Merchant Ivory’s Oscar bait, required international presales to leverage bridge financing for their next project. Hence for 12 days every May Merchant and Globus could be found in Cannes, along with hundreds of other producers and production companies, hawking their wares.
Their eventual downfall underscores the Hollywood saying, “You’re only as good as your last movie.” No matter how many successes they had Merchant and Globus never stopped, and never could afford to stop hustling.
What’s changed for Cannes in the 21st century, only the names.
Albeit producers today also tend to be less 'colourful’ than Ismail Merchant or Menahem Globus when it comes to pitching their latest opus, although the films being pitched are anything but. The rules for small productions are largely the same; find a market for your existing film, amongst hundreds of potential distributors. And the market has never been larger, especially with the growth of alternative (and lower cost) distribution through online streaming. As well, the market has never been more diverse, with distributors from Northern Europe, South East Asia, Sub-Saharan Africa and everything in between vying for product.
Once that’s done, and hopefully your film turns a profit for everyone involved, producers, whether it’s a $100 million USD blockbuster or a $70 'found footage’ horror movie, use a successful track record to go on to their next project. Returning to Cannes the following year to sell their idea again, this time to the person holding the purse strings.
Sometimes it’s a bank, sometimes it’s a Wall Street underwriter and sometimes it’s a group of dentists looking for a vanity investment (or just a little glamour).
Cannes for both film and television (many movies are sold to TV distributors) is the place where everyone comes together to find money and to make money.
This year approximately 1500 production companies and 3200 independent producers from over a 100 countries will be pitching deals (either finance or distribution) for over 5,000 films.
Clearly the vast majority of these latter day Sam Goldwynns follow the Cannon model much more than the Merchant Ivory one. Yes a few small movies do manage to attract 'name’ actors and compete with studio fare for top awards. But more often than not what’s on sale at Marche de Filme (The Film Market, a large complex of conference rooms, galleries and small auditoriums created solely for the purposes of selling movies) are titles like Zombie Cheerleaders and Mega Shark. There is no real bar to entry, anyone with a film (or idea for a film) who has a few thousands dollars to spare for a booth at the market can join the film free for all.
The festival in fact, is not known for being the launching pad of films that strike box office gold. You’d have to go all the way back to 1989’s Sex Lies and Videotape to find a low budget movie (winner of that year’s Palme d’Or) that went on to do a respectable $25 million USD domestically.
Many high budget 'art’ films have premiered at Cannes, and likewise, very few have done very well financially, nor has a win at Cannes translated to a win at the Academy Awards (which does give films a box office boost).
No Cannes ultimately is about making connections and getting into and staying in the business of low budget filmmaking.
Experienced producers say that despite the abundance of A-listers, super yachts and exclusive parties, novice producers with a product to sell, or even just a pitch for an idea, can (and do) make deals at Cannes.
There are sponsored happy hours and brunches for filmmakers and producers to mingle, Cannes veterans say the first week of the festival is when the deals are made and the second week is for gawking at movie stars.
For films actually being screened at Cannes (a very small minority) a little independent film, looking for perhaps a distribution agreement for Australia, or maybe a cable deal in Ecuador, may sometimes get good word of mouth and find themselves picked up by an American company like Focus Features or Fox Searchlight.
Although extremely rare, it’s not unheard of, and nobodies who slunk into Cannes under the radar suddenly find themselves being chased down the Croisette by agents and big name producers.
Even without a film in competition, those adept at networking can, with some persistence, and a little luck, leverage a deal for themselves just for being seen talking to the right producer.
Or be like the late Ismail Merchant, who it was often said, was an accomplished chef, and prepared gourmet meals for his deal partners, charming them all the while and leaving them, literally, with a pleasant taste in their mouths.
World box office by the numbers (in $USD):
North America (U.S/Canada) – $10.4 billion
China – $4.8 billion
Japan – $2 billion
France – $1.8 billion
U.K – $1.7 billion
India – $1.7 billion
South Korea – $1.6 billion
Germany – $1.3 billion
Russia – $1.2 billion
Australia – $1 billion
(source Statista)
